Oil stabilises, indices muted, PMI reports in focus

Stock markets in Europe and the US rallied yesterday thanks to the aggressive rebound in oil.

The energy has been in focus this week as WTI went into meltdown on Monday, and early yesterday morning Brent crude tumbled to its lowest level since 1999. In the latter half of yesterday’s session, the oil market underwent a huge rebound, and that helped boost sentiment across the board.

WTI gained 19%, while Brent crude finished up nearly 5%. Trading was choppy yesterday as the energy contracts swung from being firmly in the red to showing massive gains, and finally settling off the highs of the session. The rally in the energy market was helped by President Trump, who warned Iran that if any of the gunboats ‘harass’ any US ships, they will be fired upon by the US navy. Some market participants felt the US president was intentionally stoking political tensions to elevate the oil market.

This week oil prices were calling the shots in terms of sentiment, and yesterday was no different. The rapid turnaround in oil triggered a rally in stocks on both sides of the Atlantic. When oil was in the doldrums, traders were scared it was a warning that global demand was about to nosedive, so the recovery in the market helped alleviate those fears.

The upbeat mood was witnessed in the metals market too. Silver, copper, platinum and palladium recouped some of the losses they endured on Tuesday. Industrial metals are a good barometer of risk appetite, so the move higher speaks to a tick higher in the wider sentiment. Gold also gained ground yesterday.

Stock markets in Asia started out positive as they picked up the baton from the bullish move in the US, but now the picture is a little more mixed. The oil market has been pushing higher in the past couple of hours.

Traders are hopeful the House of Representatives will back a $484 billion relief package related to the Covid-19 crisis. Should the deal get approved, $320 billion will be allocated to the Paycheque Protection Programme, an initiative that helps companies pay their workers during the lockdown. $60 billion has been earmarked for loans to small businesses. Funds will be allocated for hospitals and coronavirus testing too.

Yesterday the UK and Canada posted their latest CPI reports, and they both showed declines as demand is starting to taper off. The British CPI rate slipped from 1.7% in February to 1.5% in March. The drop in the Canadian rate was much more pronounced as it came in at 0.9%, down from 2.2% in February. The next readings are likely to show further declines given the slump in commodity prices in recent weeks.

The foreign exchange market has been relatively calm this week. The pound pushed higher yesterday as it clawed back some losses racked up earlier in the week. Brexit chatter resurfaced, and there are mixed reports about whether the UK will seek an extension to the transition period or not. Some believe the government should focus on the coronavirus crisis, while others feel Westminster should untangle itself from the EU at the end of the year, regardless of whether a trade deal is in place.

At 7am (UK time) the German GfK consumer confidence reading will be posted, and it is tipped to be -1.8. At the same time, the UK public sector net borrowing report will be published, and economists are expecting the level to be £2.3 billion.

Between 8.15am (UK time) and 9.30am (UK time), a number of major European economies will publish their flash readings of their manufacturing PMI and their services PMI reports. The manufacturing reports for France, Germany and the UK are anticipated to be 37.5, 39 and 42 respectively, while the services readings for France, Germany and the UK are tipped to be 25, 28.5 and 29 respectively.

The UK CBI industrial orders expectations report is expected to tumble to -53, from -29 in March. The update will be released at 11am (UK time).

All eyes will be on the US jobless claims report. In the past four weeks approximately 22 million signed up for unemployment benefit. Economists are predicting today’s reading will 4.15 million, which would be a drop from the 5.24 million registered last week. It is worth noting that the reading two weeks ago was 6.61 million, so traders will be wondering if the downward trend will continue. The figure will be revealed at 1.30pm (UK time).

At 2.45pm (UK time) the US will announce the flash manufacturing PMI and flash services PMI reports, and traders are expecting 37 and 32.5 respectively. Shortly afterwards, the US new homes sales report for March will be published and the consensus estimate is for a 15% fall.

GBP/USD – has been in an uptrend since late March and resistance might come into play at 1.2647 – 200-day moving average. Beyond that metric, the 1.2800 region might act as resistance too. A move lower from here might see it target 1.2165.

EUR/GBP – has been pushing lower since mid-March and should the bearish trend continue it might target 0.8621 – the 100-day moving average. A rebound might target 0.8865 or 0.9000.

USD/JPY – is in a negative trend and further losses from here might see it target 106.91. A move through 106.91 might put 106.00 on the horizon. A move above 109.38 could see it target 110.00.

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